DEcument of The World Bank FOROMCIAL USE ONLY Rome Nho 6118-BR STAFF APPRAISAL REPORT BRAZIL NORTHEAST RURAL DEVELOPMENT PROGRAM NORTHEAST RURAL DEVELOPMENT V PROJECT (PERNAMBUCO) May 22, 1986 ProjectsDepartment Latin America and the CaribbeanRegional Office This dwuu_ bh a rnb- i dutu iomad my be _ by rwip& on I lb. peane of thir .1kw dUdIL f. a m not wIu be dIsclseMd wibo. W ol k *uhwlzau. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript
DEcument of
The World Bank
FOR OMCIAL USE ONLY
Rome Nho 6118-BR
STAFF APPRAISAL REPORT
BRAZIL
NORTHEAST RURAL DEVELOPMENT PROGRAM
NORTHEAST RURAL DEVELOPMENT V PROJECT (PERNAMBUCO)
May 22, 1986
Projects DepartmentLatin America and the Caribbean Regional Office
This dwuu_ bh a rnb- i dutu io mad my be _ by rwip& on I lb. peane ofthir .1kw dUdIL f. a m not wIu be dIsclseMd wibo. W ol k *uhwlzau.
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CURRENCY EQUIVALENTS
Currency Unit = Cruzeiro (Cr$)/Cruzado (Cz$). 1/
US$1.00 = Cr$8,891 2/
Cr$1 = US$0.000112
Cr$1 million US$112
WEIGHTS AND MEASURES
The metric system is used throughout the report.
FISCAL YEARS
Government of Brazil = January 1 to December 31
Northeast Rural Development Program April 1 to March 31
Project = April 1 to March 31
J New currency established on February 28, 1986 at the rate ofCz$l=Cr$1,000
2/ Exchange rate at time of appraisal (November 1985)
FOR OFFICAL USE ONLY
GLOSSARY OF ABB1!9VIATIONS
CAGEP Companhia Agricola de Pernambuco(State Warehouse Company of Pernambuco)
CD Community Development
CEASA Central de Abastecimento de Pernambuco(Central Marketing Organization of Pernambuco)
CISAGRO Companhia de Desenvolvimento Agropecuario do Pernambuco(State Agricultural Development Company)
COBAL Companhia Brasileira de Alimentos(Brazilian Food Company)
CPATSA Centro de Pesquisa Agropecuaria do Tropico Semi-Arido(Center of Agricultural Research for the Semi-AridTropics)
EMATER-PE Empresa de Assistencia Tecnica e Extensao Ruralde Pernambuco(Pernambuco State Technical Assistance and Rural ExtensionCompany)
EMBRAPA Empresa Brasileira de Pesquisa Agropecuaria(Federal Agricultural Research Company)
IC Comissao lnterministerial Para o Nordeste(Interministerial Commission for the Northeast)
IPA Instituto de Pesquisa Agropecuaria(Agricultural Research Institute)
LDP Local Development Project
MINTER Ministerio do Interior(Ministry of The Interior)
NRDP Northeast Rural Development Program
POLONORDESTE Programs de Desenvolvimento de Areas Integradasdo Nordeste(Development Program for Integrated Areas ofthe Northeast)
RDC Conselho de Desenvolvimento Rural(Regional Rural Development Council)
SAPE Secretar!.a de Agricultura de Pernambuco(State Secrettriat of Agriculture)
This document has a rstrcted distribution and mya be wed by recipients only in the performanceof tir official duties. Its contents may not otherwise be discosed without World Bank authorization.
SEPLAN Secretaria de Planejamento(State Secretariat of Planning)
SIMA Sistema de Informacao de Mercado Agricola(Agricultural Marketing and Information System)
SRDC Conselho Estadual de Desenvolvimento Rural(State Rural Development Council)
SUDENE Superintendencia de Desenvolvimento do Nordeste(Superintendency for the Development of the Northeast)
TU Technical Unit of the State's Secretariat of Planning
BRAZIL
NORTHEAST RURAL DEVELOPMENT PROGRAM
NORTHEAST RURAL DEVELOPMENT V PROJECT (PERNAMBUCO)
Table of Contents
Page No.
1. LOAN AND PROJECT SUMMARY .................... I...............
II. THE AGRICULTURAL SECTOR ................. .... ..... ....... 3
Agriculture in the National Economy 3The Rural Northeast ............ 3 ..................... *.. 3Government Development Strategy for the Rural Northeast ... 4Experience with Past Bank Lending ..... 4The State of Pernambuco ... .99.... ........... 5
III. THE PROJECT .................... 6
Origin and Rationale for Bank Involvement ... 6Priority Areas .... 6Project Objectives and Description .... 7
Water Resource Development 7Agricultural Research and Basic Seed Production 7Agricultural Extension 7Rural Credit 7 ....... 7Marketing Services 8Support to Small Rural Communities 8Project Administration and Training ..... 8
Land Tenure Improvement 9Project Organization and Implementation.................. 9
Federal and Regional Levels 9State and Local Levels 9Annual Planning and Budgeting 9Accounts and Auditing 9Operating Agreements 10Monitoring and Evaluation 10
Production, Benefits and Farm Incomes ................ 14
This report is based on the findings of an appraisal mission which visitedBrazil during November 1985. The mission comprised Messrs. M. Fairless(Mission Leader), H. Floyd, D. Mitchnik (Bank); M. Hagerstrom, J. M.Pliego-Gutierrez and M. Gil (Consultants).
Table 1.1 State Structure of Land Holdings............., 24Table 1.2 Evolution of State Agricultural Production... 25Table 1.3 Project Priority Areas and Beneficiary
Distributior . ....................................... 04 26Table 1.4 List of Municipalities in the Project Area... 27Table 1.5 Annual Cost Phasing of Project Activities.... 29Table 1.6 Summary Account by Project Component ........ 30Table 1.7 Estimated Schedule of Bank Disbursements .... 31Table 1.8 Allocation of Loan Proceeds ................. 32
Annex 2 - PROJECT ORGANIZATION AND MANAGEMENT .................... 33
Table 2.1 List of Executing and Collaborating Agencies. 35Chart 1 Project Coordination and Management Chart.... 36Chart 2 Implementation Schedule ..... ................ 37
Annex 3 - FINANCIAL AND ECONOMIC BENEFITS ......... ............... 38
Table 3.1 Total Annual Area and Production of MajorCrops and Livestock Without Project and atFull Development ......... ................... 40
Table 3.2 Characteristics of Illustrative Farm ModelsUsed in Financial and Economic Analysis......* 41
Table 3.3 Yields and Areas of Major Crops at Farm Levelwithout Project and at Full Development ..... 42
Table 3.4 Project Economic Analysis.................... 43Table 3.5 Principal Prices Used for Financial and
Annex 4 - DOCUMENTS AVAILABLE IN THE PROJECT FILE ................ 46
Maps:IBRD 18686 - Yearly Land Adjudication OperationsIBRD 19577 - Priority AreasIBRD 19578 - Agricultural Potential Defined by Dependable
Rainfall
BRAZIL
NORTHEAST RURAL DEVELOPMENT PROGRAM
NORTHEAST RURAL DEVELOPMENT V PROJECT (PERNAMBUCO)
I. LOAN AND PROJECT SUMMARY
Borrower: Federative Republic of Brazil.
ExecfitingAgency: A Technical Unit (T. U.) of Pernambuco's Secretariat of
Planning for coordination of all State and Federal agenciesparticipating in the Pernambuco Rural Development Plan.
Amount: US$92.0 million equivalent.
Terms: Aepayable in 15 years on a fixed amortization schedule,including 3 years of grace, at the Bank's standard variableinterest rate.
Beneficiaries: Some 73,000 low-income families operating farms of up to100 ha in 118 municipalities of the State of Pernambucowould directly benefit from the project. A larger number offamilies would also benefit from the water supply, communitydevelopment, fisheries and marketing components.
ProjectDescription: The proposed project is the fifth in a series of projects
within the new Northeast Rural Development Program (NRDP)designed to increase the efficiency and impact of ruraldevelopment efforts. The project objectives are to: (a)increase agricultural production and productivity in theState of Pernambuco; (b) generate employment opportunitiesfor low-income farm families; (c) increase Pernambuco'sinstitutional capacity to provide efficient agriculturalservices for small farmers; and (d) promote water resourcedevelopment and technology generation and diffusion todecrease small farmer vulnerability to recurring droughts.It would support water resource development for bothagricultural and domestic use, agricultural research,agricultural extension, investment credit, marketingservices, funding for community subprojects and projectadministration and training.
Risks: Project risks include: (a) possible inefficient delivery ofproject services; (b) lack of sufficient inter-institutionalcooperation; (c) delays and shortfalls in counterpartfunding; (d) insecurity of land tenure; and (e) recurringdrought conditions. The project has been designed tominimize these risks.
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Estimated Costs;Local Foreign Total
----- US$ Millions --
A. Water Resource Development 14.7 3.0 17.7B. Agricultural Research 7.2 0.1 7.3C. Agricultural Extension 36.5 0.9 37.4D. Rural Investment Credit 42.2 7.4 49.6E. Marketing Services 4.4 0.8 5.2F. Support to Small Rural Communities 23.3 3.3 26.6G. Project Administration and Training 16.1 0.8 16.9
2/ including initial deposit of US$4.0 million into the Special Account.
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II. THE AGRICULTURAL SECTOR
Agriculture in the National Economy
2.01 Agriculture in Brazil has traditionally been the main source of exportsand employment, though a relatively small contributor to GDP. In 1970,agriculture accounted for 12% of GDP, 44% of the economically active populationand 67% of total exports. In 1984, these figures were 13%, 30%, and 387%,respectively. Throughout the 1970s, there was rapid expansion in Brazil'sagriculture (5% per annum); during the recession in the early 1980s, output andinvestment stagnated and then recovered in 1984 and 1985.
2.02 The performance of the sector in the 1970s masked sharply disparaterates of growth between regions, farm types and individual crops. The mostdynamic expansion was with products that rely on heavy capital investment or highlevels of inputs, such as soybeans, citrus, tobacco, cocoa and sugarcane, on largecommercial farms in central and southern Brazil. Much slower growth rates, and insome cases declines, were recorded for such staple food crops as rice, maize,wheat, beans, manioc and potatoes.
2.03 These trends in agricultural output were reflected in agriculturaltrade. In the 1970s, tbe rapid growth in agricultural exports depended heavily onsoy products, orange juice, cocoa, tobacco and sugar. Of total agriculturalexports of US$2.09 billion in 1970, only 15% were accounted for by these fivecrops. By 1980, they accounted for over 50% of Brazil's US$9.43 billion ofagricultural exports. After 1980, the value of agricultural exports hardly grewat all, except in 1984, when coffee and orange juice were aided by highlyfavorable price movements.
The Rural Northeast
2.04 The Northeast is comprised of the States of Maranhao, Piaui, Ceara, RioGrande do Norte, Paraiba, Pernambuco, Alagoas, Sergipe, Bahia, the northernportion of the State of Minas Gerais, and the island of Fernando do Noronha with atotal area of over 1.5 million km2 (18% of the country's total area). TheNortheast has been the nation's foremost problem region since the late 1800s.
2.05 Drought, uncertain rainfall, skewed land distribution, and limitedemployment opportunities have resulted in high levels of poverty andunderemplovment. From 1970 to 1983, 3.3 million people migrated from the region,partially in response to a five-year drought (1979 to 1983). In 1980, theNortheast had a total population of 35 million (about 29% of the country's total),growing at 2.2% per annum with a population density of 22.5 inhabitants per km2.Half the population lives in rural areas and over 50% of the work force is engagedin agriculture. Land ownership is highly concentrated: farms under 10 ha (70% ofall farms) occupy less than 6% of the farm area; farms over 500 ha (1% of allfarms) occupy more than 40% of the farm area. Rural incomes are very low. In1980, over 80% of the rural population earned less than the minimum salary (aboutUS$675 annually, or 35% of the national average).
2.06 The Northeast contributes about one-fifth of the total value ofBrazilian crop production; many regionally produced commodities (sisal, cassava,sugar, and cotton) represent significant shares of national production. The zona
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da mata, a narrow, fertile coastal strip, contains one-third of the regionalpopulation and a major proportion of industry and plantation agriculture. Theagreste, a transitional zone contiguous with semi-arid areas, is dominated bymixed farming, as well as the raising of cattle. The sparsely populated semi-aridsertao, is the largest of the subregio-s and the most vulnerable to periodicdroughts.
Government Development Strategy for the Rural Northeast
2.07 Until the 1950s most Government efforts to assist in the rural Northeastwere limited to drought reliet works, emergency programs and incentives for exportcrops. The slow pace of socioeconomic development and the need for improvedregional planning led to the creation in 1959 of the Superintendency for theDevelopment of the Northeast (SUDENE). SUDENE was originally responsible forcoordination of public investment, drought emergency measures and powerful fiscaland credit incentives to attract new private investment. The initiative forregional policy formulation was transferred to various Federal agencies in the1970s with SUDENE continuing to play an important role in the coordination offederally-funded special rural programs.
2.08 The special rural programs have followed two approaches. The first wasbased on the integrated development of selected subregions. It included theDevelopment Program for Integrated Areas of the Northeast (POLONORDESTE), theSpecial i4ogram of Support for the Development of the Semi-Arid Region of theNortheast, and the Special Program of Support for Poor Populations of the SugarGrowing Zones. The second approach was concerned with alleviating the effects ofdroughts. It included several parallel programs such as the Water Resources UseProgram, the Semi-Arid Tropics Research Program and the Drought Emergency ReliefProgram, as well as large federal public irrigation projects.
2.09 Planning for a major new development initiative began in 1982,stimulated by the recognition that the aggregate contribution of the first twoapproaches in alleviating rural poverty had been limited. The new initiative isbeing implemented through a series of sectoral projects in such areas as landtenure, federal irrigation, health, education and integrated rural development.The Northeast Rural Development Program (NRDP) is a 15-year program based upon acomprehensive regional policy framework, subsectoral strategy guidelines,multi-year state rural iavestment plans and the integration of all rural specialprograms under unified planning and implementation procedures.
Experience with Past Bank Lending
2.10 The Bank has made 35 loans, totaling US$2,248.6 million, foragricultural and rural development in Brazil. These include one agriculturalcredit and export loan for US$303.0 million; supplemental financing for US$30.5million, under the Special Action Program; three loans for US$519.2 million, foragroindustries; two, for US$60.5 million, for livestock; one for US$18.2 millionfor grain storage; two, for US$100 million for agricultural research; two forUS$255 million for agricultural extension; one for US$100 million for land tenureimprovement; and 22, totalling US$862.2 million, for various settlement,irrigation and rural development projects in the Northeast 3/, in Minas Gerais,
3/ A preliminary evaluation of impact is provided in the World Bank CountryStudy, Brazil: An Interim Assessment of Rural Development Pro rams for theNortheast, Washington, D.C., 1983.
and in the North and Northwest. The Project Performance Audit Report for the AltoTuri Land Settlement Project (Loan 853-BR) showed that the project raised settlerincomes beyond expectations, but was less successful in the areas of environmentalprotection, community organization, and strengthening of cooperatives. TheProject Performance Audit Report for the Lower Sao Francisco Polders Project (Loan1153-BR) showed that, despite implementation delays due to design changes andsocial tension in the area, beneficiaries' net incomes increased oeyond originalestimates, and small farmers were capable of moving successfully from subsistenceto commercial agriculture.
2.11 Ten of the Bank-financed projects were POLONORDESTE rural developmentprojects located in eight states of the Northeast. Approved from 1976 to 1983,six of the projects are still being executed and the other four have beensubstantially completed. Implementation has im?roved over the years, especiallyin project planning and agency coordination. All projects have experiencedimplementation and disbursement delays mainly because of the unusually severe1979-83 drought, de_ays in providing local f'inds, limited execution capacity forcarrying out small-scale irrigation activities and initial lags in the generationof drought-resistant technology for small farmers. These problems were addressedduring the preparation of the NRDP.
The State of Pernambuco
2.12 Location and Natural Features. Pernambuco has 98,300 km2 ar4 has onlyone major river, the Sao Francisco River. Pernambuco's zona da mata covers 10% ofthe State, has an abundant rainfall (up to 2,000 mm per year), fertile soils, andis the main cultivated region. The agreste covers 20% of the State, and rainfallranges from 650 to 900 mm per year with a dry period of up to seven months. Thesertao covers 70% of the State, rainfall is below 500 mm, and irregular dryperiods can last up to ten months.
2.13 Economic and Social Conditions. Pernambuco's 6.1 million inhabitantsgenerated a GDP per capita of US$1,030 (1980), relatively high for the Northeast.Recife, the capital, has become a marketing and industrial hub for the entireregion; however, agriculture only produces 12% of the State's GDP. About 85% ofthe agricultural work force earns less than the minimum salary. Living conditionsfor most of the population are still poor: infant mortality is high (100deaths/1,000 live births) and only 40% of the population has access to treatedwater and less than 10% to sewage facilities.
2.14 Land Tenure and Productior,. Three-quarters of the farms are small-scale(less than 100 ha) and occupy only 11% of the State, 4% of the farms (those over100 ha) occupy about 58% of the area. Over half of the small-scale farmers arelocated in the agreste, and almost two-thirds of them are landowners. Food cropproduction depends on these farmers; however, output is insufficient except forcassava. Large-scale farms irn the zona da mata mostly grow sugarcane.Agricultural land use in the sertao is relegated to extensive grazing.
2.15 Agricultural Services. A Technical Unit (T. U.) within the StateSecretariat of Planning vwas created to administer and coordinate the State's ruraldevelopment programs. Agricultural research is the responsibility of thereputable State Institute for Agricultural Research (IPA). Agricultural extensionis provided by the State Technical Assistance and Rural Extension Company(EMATER-PE) through a network of regional and local offices. Agricultural credit
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is provided through an adequate branch network of four major banks: the Bank ofBrazil, the Bank of Northeast Brazil, the National Bank for Cooperative Credit andthe State Bank of Pernambuco. Water resource development, still at an incipientstage, is mostly done by the State Agricultural Development Company (CISAGRO) asare land cadastral activities. Public marketing is handled by the CentralMarketing Organization of Pernambuco (CEASA-PE).
2.16 Rural Development. The State's self-financed rural development project,TERRA NOSSA, concentratee on land reform. The Bank has financed the PernambucoRural Development (Agreste Setentrional) Project with a loan of USS40 million(Loan 1728-BR) signed in June 1979. Experience with the Bank-financed project isconsistent with that of other POLONORDESTE projects (para. 2.11). Most componentsof the Pernambuco project have progressed satisfactorily, with slow disbursementsdue mostly to the lack of counterpart funds. The closing date has been extendedone year to December 31, 1986, when the area would be incorporated into theproposed project.
III. THE PROJECT
Origin and Rationale for Bank Involvement
3.01 The NRDP presents a new opportunity for the Bank to support povertyalleviation and institution-building objectives in the Northeast of Brazil.Ccmmon problems detected in the ongoing projects (paras. 2.11 and 2.16),skewed pattern of land ownership and the experience gained by SUDENE and stateinstitutions, convinced both the Government and the Bank that a unified regionaland sectoral approach was needed.
3.02 In August 1982 the Government asked the Bank to assist SUDENE ir.preparing the NRDP. In April 1985, as part of the Program the Bank approved theNortheast Rural Development I and II Pro4ects (Loans 2523-BR and 2524-BR) for theStates of Sergipe and Rio Grande do 14orte. In addition to supporting the SergipeRural Development Plan, the first project established the structure and operatingprocedures for regional program planning, coordination and research to support allten Northeast state rural development plans. In June 1985, the Bank approved theNortheast Region Land Tenure Improvement Project (Loan 2593-BR) that finances landcadastral activities in all ten Northeastern states. Projects for the States ofBahia and Piaui are expected to be submitted for Board approval shortly. Projectsfor the States of Maranhao and Ceara have already been appraised, and the threeremaining projects for the States of Alagoas, Paraiba and Minas Gerais are beingprepared for Bank appraisal.
3.03 Preparation of the Pernambuco project was carried out by the T. U.(para. 3.12) with assistance from SUDENE, the FAO/World Bank Cooperative Program,and the Bank. The project was appraised by the Bank in November 1985, andnegotiations took place in May, 1986. The Brazilian delegation was led by Mrs.Stael Martins Baltar of the Federal Ministry of Planning.
Priority Areas
3.04 Based on the relative concentration of small farmers and on the
existence of an underdeveloped agricultural potential the T. U. selected 118 ofPernambuco's 167 municipalities as priority areas for development. Emphasis wasput on the agreste region (Map IBRD 19577).
Project Objectives and Description
3.05 The main objectives of the proposed project would be to: (a) increaseagricultural production and productivity in the State; (b) generate employmentopportunities for low-income farm families; (c) increase Pernambuco's capacity toprovide efficient agricultural services to its small farmers; and (d) promotewater resource development and technology generation and diffusion to decreasesmall farmer vulnerability to recurring drought. The project would benefit anestimated 73,000 low-income farm families. The project components are describedbelow and are expanded upon in Annex 1.
3.06 Water Resource Development. This component would include: (a)construction of two medium-sized state-managed irrigation schemes totalling 550 haof irrigated land, benefiting 275 families, and of 17 small irrigation schemestotalling 1,620 ha, benefiting about 810 farm families; (b) studies to support thedevelopment of the State's irrigation plan and the preparation of irrigationprojects for implementation under a subsequent stage of the NRDP; (c) a program oftechnical assistance to strengthen the implementing capacity of state irrigationagencies; (d) construction of 140 simple water supply systems and rehabilitationof 73 systems benefiting a total of 57,000 people in small rural communities; and(e) stocking of 14 State-owned lakes with local fish species and monitoringfishing activities. In addition, 6,000 ha of private irrigation would befinanced under the rural investment credit component. During negotiations, theState provided assurances that, within six months of loan signature, It woulddefine with SUDENE's assistance and in a manner satisfactory to the Bank: (i) theinternal structures of the Irrigation Division in the State Secretariat ofAgriculture and of CISAGRO's irrigation unit; (ii) staffing requirements and staffprofiles for those agencies; and (iii) their operational linkages; and put thepreceeding organizational improvements into effect (para. 4.03).
3.07 Agricultural Research and Basic Seed Production. Reseirch would bedirected towards simple technology to make farming systems more productive andresistant to possible drougbt and would include: (a) four agroecological andnatural resource studies to assist in future research planning; (b) 730 short- andmedium-term applied research trials at experiment stations to improve productiontechnology; (c) 12 farm-level observation units to test and adapt integrated farmproduction technology; (d) annual basic seed production on about 100 ha; and (e)production and distribution of 120 improved dairy cattle.
3.08 Agricultural Extension. This component would include: (a) theestablishment and equipping of five local offices; (b) establishment of about 470demonstration plots; (c) payment of salaries and recurrent costs for about 400agricultural and social extension agents, about 50 subject-matter specialists andsupervisory personnel and about 190 administrative staff; and (d) production ofabout 10 million tree seedlings.
3.09 Rural Credit. The project would finance medium- and long-term creditfor on-farm investments for 24,000 farmers (33% of the 73,000 directbeneficiaries). A greater number would receive short-term production credit to befinanced by the participating banks (para. 2.15). Farmers would contribute withtheir labor to on-farm investments but, due to limited savings after the drought,financing would cover up to 100% of goods required for on-farm investment costs
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with a maximum repayment period of twelve years and a maximum grace period ofthree years. Sugarcane plantations, irrigation schemes larger than 4 ha, andautomobiles would not be eligible. Financi'- would not exceed ceilingsestablished for the NRDP credit program in ne Central Bank's Manual for RuralCredit for individual farmers, farmer associations and cooperatives (provided 70%of their members are small farmers who would directly benefit from the investment)(see paras. 3.22 and 3.23). Short-term production credit (custeio) would beprovided on a priority basis to project beneficiaries by participating banks.
3.10 Marketing Services. The marketing component is designed to increasefarmers' knowledge of marketing, prcduct grading and prices, improve the timelyprovision of agricultural inputs, and help the State establish a pilot foodwholesaling service in rural areas. To achieve this, the project would include:(a) expansion of the State-run marketing information service (SIMA); (b) purchaseof a mobile classification and grading unit for veg-tables, fruit and legumecrops; (c) construction of a municipal market; (d) establishment of a foodwholesale service for private retailers by the Federal Food Company (COBAL),including the expansion of three rural service centers; and (e) construction ofthree warehouses for storage of agricultural production.
3.11 Support to Small Rural Communities. This component would facilitatesmall-farmer participation in the project and create job opportunities. Thecomponent would include: (a) creation of a community development (CD) fund ofabout US$21.4 million to make grants for local subprojects; (b) purchase ofvehicles and equipment; and (c) hiring and training of 42 community developmentagents. EMATER-PE would be responsible for the implementation of the componentand the T. U. for administering the CD fund. Farmers' groups would identify, planand execute subprojects that would encompass economic activities or communityinfrastructure and would include training for community leaders. Writtenproposals detailing objectives, benefits, implementation methodology, andcost-sharing would be subject to Municipal Councils' approval. Duringnegotiations, the State Government provided assurances that: (a) the CD fund wouldbe established and maintained under terms and conditions satisfactory to the Bank;(b) no funds would be released to beneficiary groups prior to the signing of theagreement between the T. U. and the groups or municipalities (in the case ofunincorporated groups); and (c) not later than December 31, 1988, the Bank and theT. U. would review the performance of the grants for economic subprojects toestablish the feasibility of further funding of subprojects on a loan basis(para. 4.03 (b)).
3.12 Project Administration and Training. The T. U. has been designated toadminister, coordinate, and integrate all federally-funded rural programs underthe project. All project-related training would be centrally coordinated by theT. U.. The project would strengthen the T. UT's administrative capabilities byfinancing salaries of 60 higher level and related support staff, travel expenses,office equipment, training and other operating costs. The current administrativeorganization for the ongoing project (para. 2.16) would be restructured to takeaccount of the proposed state-wide rural development project. Duringnegotiations, the State Government provided assurances that the T. U. would bereorganized, staffed and maintained under conditions satisfactory to the Bank(para. 4.03 (c)).
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Land Tenure Improvement
3.13 Secure tenure of land is essential for sustained rural development. TheInter-American Development Bank has successfully financed a cadastral project thatcovered part of the State. The improvement of land tenure conditions in theNortheast continues to be a complex task that has justified a single, regional,Bank-financed project, the Northeast Region Land Tenure Improvement Project(para. 3.02). Redistribution targets, procedures for land acquisition, allotment,and beneficiary selection were agreed as conditions for that loan. Duringnegotiations, the Federal and State Governments provided assurances that in theproject priority areas: (a) at least 87,000 ha would be available forredistribution to project beneficiaries by March 31, 1988; and (b) at least anadditional 48,000 ha would be available by March 31, 1990 (para. 4.01 (a)).
Project Organization and Implementation
3.14 Federal and Regional Levels. An Interministerial Commission (IC),chaired by the Secretary-General of the Ministry of Interior (MINTER) andcomprised of representatives of the Ministries of Agriculture, Planning, Land, andFinance, and the Superintendent ot SUDENE, has overall policy planning andbudgeting responsibility for NRDP. As regional coordinator of the NRDP, SUDENE'sDirectorate for the Program of Support to Small Farmers receives policy backingfrom a regional Rural Development Council (RDC) that includes representatives fromthe Northeast states.
3.15 State and Local Levels. A State Rural Development Council (SRDC),chaired by the Governor with the Secretary for Planning as Executive Secretary andwith up to five other State Secretaries, would provide overall guidance for ruraldevelopment activities. The day-to-day work would be carried out by the T. U.which has its own budget, salary structure and administrative personnelprocedures. Because the unification of the federally-funded Northeast ruralspecial programs is important, it would be a condition of loan effectiveness thatthe Bank be provided with evidence that the planning, budgeting, staffing andadministration of all federally-funded rural special programs in Pernambuco havebeen unified under the coordination of the T. U. (para. 4.05).
3.16 Annual Planning and Budgeting. Targets and costs established atappraisal would be adjusted annually during the eight-year implementation period.Once the Federal Government establishes overall funding availability for the NRDPfor the next year, state allocations would be established by SUDENE inconsultation with the RDC. The T. U. would consolidate each executing agency'sdetailed annual operating plans, ensure internal consistency and submit them forapproval by SRDC and SUDENE. SUDENE would consolidate state plans into a regionaloperating plan to be presented to the IC as the basis for the portaria(administrative regulation) signed by the Ministers and legally establishingbudget allocations for each State. During negotiations, the Federal Governmentprovided assurances that: (a) the regional operating plan would be sent each yearto the Bark for comment prior to approval; (b) the portaria, the final regionaloperating plan and the Pernambuco State operating plan would be sent to the Banknot later than April 1 of each year; and (c) any proposed changes in the planningand budgeting process would be submitted to the Bank for comment prior toenactment (para. 4.02 (a)).
3.17 Accounts and ALditing. Each agency would maintain its own separateaccounts for project experditures, to be audited annually by auditors acceptable
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to the Bank. During negotiations, the Federal and State Governments providedassurances that: (a) project accounts would be maintained according to practicessatisfactory to the Bank; (b) terms of reference for the auditors would includeverification of the Statements of Expenditures and the Special Account; and (c)copies of the audit report would be sent to the Bank within six months of theclose of the project's fiscal year (para. 4.01 (b)).
3.18 Operating Agreements. Agreements among project coordinating andexecuting agencies would be entered between: (a) the T. U. and federal agencies;(b) executing agencies, with the participation of the T. U. when more than one isinvolved in executing a project component; and (c) the T.U. or an executing agencyand the concerned municipality or group prior to construction of civil works orinitiation of a community subproject. These agreements would provide executionguidelines and targets, reporting requirements, procedures for inter-agencycollaboration and funding conditions linked to performance criteria. Duringnegotiations, the Federal and State Governments provided assurances that theywould enter into all necessary agreements not later than six months after loansigning (para. 4.01 (c)).
3.19 Monitoring and Evaluation. Monitoring and evaluation arrangements havesimplified reporting requirements and would provide accurate and timelyinformation for project management and annual planning. The T. U. would receivefrom executing agencies monthly reports on key physical and financial indicatorsand would produce quarterly consolidated monitoring summaries. Duringnegotiations, the State Government provided assurances that: (a) quarterlymonitoring reports would be sent to the Bank not later than three months after theend of the respective fiscal quarter; (b) the T. U.'s Monitoring and Evaluationdivision would be fully staffed, under conditions satisfactory to the Bank; and(c) terms of reference and institutional arrangements for evaluations would besatisfactory to the Bank (para. 4.03 (d)). (Details on Project Organization andmanagement are given in Annex 2.)
Project Cost
3.20 Total project costs are estimated at US$188.4 million (see Loan andProject Summary) with a direct and indirect foreign exchange component of US$17.7million, or about 9%. The total cost.is based on the assumption that all goodsand services would be acquired in Brazil, with the exception of specializedconsultants' services. The cost estimate includes about US$5.7 million equivalentin applicable local taxes. Physical and price contingencies are equivalent to 1%and 16% of baseline costs, respectively. Physical contingencies were added tobaseline costs at 15% for irrigation and water supply construction; 10% for otherconstruction; and 5% for equipment, furniture and vehicles. Price contingencieswere estimated in US dollar terms based on international inflation ratesestimated at 7.2% for 1986, 6.8% tor 1987 and 1988, 7.0% for 1989, 7.1% for 1990,and 4.0% thereafter. It was assumed that period c local currency devaluations,estimated on a purchasing power parity basis, would compensate for differencesbetween projected US dollar inflation and local inflation rates.
Financing Plan
3.21 The amount of the proposed Bank loan would be US$92.0 millionequivalent, which would represent 50% of total estimated cost, net of taxes. Theproposed loan would finance 100% of direct and indirect foreign exchange costs and44% of local costs. The loan would be repayable over 15 years, including 3 years
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of grace, and would bear interest at the Bank's standard variable rate. The loanwould be made to the Federative Republic of Brazil, which would carry the foreignexchange risk and provide counterpart funds as necessary to complete the project.Funding procedures would be those adopted for the NRDP (para. 3.16). Funds wouldbe channelled from the Treasury through MINTER and SUDENE to either a specificproject account in the State for activities executed by state agencies or directlyto federal executing agencies. Monthly advances of Government counterpart fundswould also be made through the Central Bank to cover the estimated Bank share ofmonthly expenditures. During negotiations, the Federal Government providedassurances that the administrative regulation establishing the above fundingprocedures (portaria) would not be changed without Bank approval (para. 4.02(b)).
On-Lending Terms
3.22 Proceeds of the loan would be made available, on a grant basis, toparticipating federal agencies and the State of Pernambuco. In the case ofagricultural credit, the Central Bank would rediscount the subloans disbursed bythe participating banks. Following the February 28, 1986 financial and monetaryreform, the Government decided, in May 1986, to adopt a new interest rate policyfor rural credit. This policy--which would provide part of the policy frameworkfor the proposed Second Agricultural Sector Loan--would be aimed at maintaininginterest rates that would be positive in real terms and would fluctuate accordingto market conditions. Another important policy objective would be to reducecredit subsidies substantially. There would be a general agricultural interestrate, applicable to rural investment credit operations outside the North and theNortheast regions, equal to the rate on commercial banks' certificates of deposit(Certificados de Deposito Bancario, CDB) minus 10 percentage points. This ratewould be adjusted every six months, on March lst and September 1st of each year,to a level 10 percentage points below the CDB rate prevailing then. Forshort-term credit, the interest rate would be initially set at the levelprevailing for investment credit at the time of signing the contract and wouldremain fixed for the term of the loan. Until February 28, 1987, the general ratehas been fixed at 10% and it is expected that, in subsequent periods, the ratewill fluctuate near 10% in real terms. The interest rates for investment andshort-term credit to be applied to the small Northeast farmers who would benefitfrom the proposed project would be: 2 percentage points below the general rate,for investments in sugarcane, cocoa, coffee and rubber; 3 percentage points belowthe general rate, for investments in irrigation, which would be changed to 2.5percentage points below the geiteral rate in 1987, and to 2 percentage points belowin 1988 and thereafter; and 30% of the general rate, for other investments. Theserates represent a substantial improvement over the ones prevailing until lastFebruary.
3.23 During negotiations, the Federal Government provided assurances that:(a) the Central Bank would provide sufficient funds to the participating banks tocarry out the project's investment credit component; (b) the Central Bank and theother participating banks would carry out th's com-onent in accordance with thelending terms and conditions set forth in paras. 3.09 and 3.22 above; (c) each ofthe participating banks would provide monthly information to SUDENE and the T. U.on investment credit availability, demand and lending per bank agency; and (d)priority would be given by the participating banks to allocations of short-termproduction credit to their agencies serving the project area in amounts adequate
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to finance the working capital requirements of project beneficiaries. The newrural interest policy referred to in para. 3.22 above would provide the basis fotan amendment to the original agreement between the Bank and the Government onrural interest rates (negotiated in February 1983), in connection with theAgricultural Credit and Export Project (Loan 2348-BR). This amendment would alsoprovide for an annual review of Brazil's agricultural credit policy by the Bankand the Government. The signing of the above amendment would be a condition ofsigning for the loan proposed in this report (para. 4.02(c)).
Cost Recovery
3.24 Although it is not Government policy to obtain full cost recovery onrural programs for low-income families, current legislation allows CISAGRO torecover 100% of annual operation and maintenance costs and public investments incommon irrigation and drainage infrastructure over a 50-year period. The initialinvestment is revalued but without charging interest 4/. The municipalitieswould cover the costs of operation and maintenance of the water supply servicesuntil the Northeast Rural Water Supply and Sanitation Program begins in 1988; atthat stage consumers would be expected to pay for the service. Duringnegotiations, the State Government provided assurances that: (a) cost recoveryprovisions for public irrigation schemes would be implemented in accordance withGovernment legislation that is satisfactory to the Bank; and (b) drinking watersupply charges covering full operation and maintenance costs would be charged toconsumers in 1989 (para. 4.03 (e).
Procurement
3.25 Civil works, estimated at US$16.3 million, would be executed bycontracts awarded through local competitive bidding procedures acceptable to theBank. Brazil has a competitive local construction industry that is capable ofcarrying out project works. As individual construction works are small anddispersed, foreign contractors are not expected to be interested, but would not beexcluded from bidding. Some community development civil works would be carriedout by the beneficiaries under written agreements with the T. U. (para. 3.11).Equipment, materials and vehicles required by the project, totalling some US$5.1million, almost all locally produced, would be procured by the several executingagencies at various locations over the project implementation period, inaccordance with local competitive bidding procedures acceptable to the Bank.Civil works contracts estimated to cost more than US$250,000 and goods andservices contracts for more than US$100,000 would be subject to prior Bank reviewof procurement documentation (about 60% and 40% of the value of civil works, andgoods and services, respectively). Consultants' services totalling some 14man-years, would be procured both locally and internationally in accordance withBank guidelines. During negotiations, the Federal and State Governments providedassurances that they would follow the procurement arrangements outlined above andin the following table (para. 4.01 (d)):
4/ For further clarification on cost recovery of irrigation projects see Brazil:Upper and M1Jdle Sao Francisco Irrigation Project, Staff Appraisal Report(Report No. 5975-BR).
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Procurement Arrangements(US$ million)
Procurement MethodType of Project Expenditure LCB Other N.A. Total
Total 21.4 (8.9) 1.1 (1.1) 165.9 (82.0) 188.4 (92.0)
Note: Figures in parentheses are the estimated respective amounts to be financedby the Bank.
Disbursements
3.26 The proceeds of the proposed loan would be disbursed throughout theeight and a half year disbursement period at a rate of 70% against projectexpenditures made for water resource development, credit and support to smallcommmunities, and at a rate of 50% against expenditures made for marketing.Foreign consultants' services for water resource development would be financed at100% of foreign expenditures. Disbursements for the remaining components, whichhave a high rate of recurrent costs, would be made at a rate of 50% of projectexpenditures until aggregate amounts of US$1.3 million for agricultural research,US$6.8 million for extension, and US$3.5 million for administration and traininghave been disbursed. Thereafter, disbursements for those categories would be madeat a rate of 30% of project expenditures until aggregate amounts of US$2.1 millionfor agricultural research, US$9.3 million for extension, and US$5.3 million foradministration and training have been disbursed; the remaining funds for thesecategories would be disbursed at 10% of expenditures. To enable an early start ofproject execution, project expenditures, (eYcept agricultural credit) incurredafter December 1, 1985, (end of proJect appraisal), but before loan signature,would be eligible for reimbursement up to US$4.5 million equivalent. However, nodisbursements would be made for the extension, research, water supply andadministration components in the municipalities of the ongoing project until fundsallocated for those co-ponents under Loan 1728-BR have been fully committed orcancelled (para. 2.16). Disbursement projections reflect the disbursement profilefor previous rural development projects in Brazil.
3.27 Disbursements for all investment, operating and technical assistanceexpenses under US$250,000 would be made under Statements of Expenditure preparedby the various executing agencies and ce:rified by the T. U. Supportingdocumentation would not be submitted to the Bank but would be made availableduring project supervision. Standard documentation for contracts exceedingUS$250,000 would be submitted to the Bank. To reduce Government prefinancingrequirements, a Special Account would be opened in the Central Bank with aninitial deposit equivalent to US$4.0 million. Withdrawals in cruzados from the
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Special Account, supported by Statements of Expenditures, would be made at theexchange rate that prevailed on the date of the expenditure. The Central Bankwould send the corresponding withdrawal applications to the Bank, *shich would thenreplenish the Special Account. The disbursement of any loan proceeds allocated tofinance the construction of public irrigation schemes would be subject to thefollowing conditions: (a) Bank approval of the scope and contents of the technticalassistance program for state irrigation agencies (para. 3.06(c)); (b) receipt bythe Bank of proof of acquisition of the land required for such schemes; and (c)Bank approval of detailed engineering designs, resettlement plans, and operationand maintenance standards for such schemes (para. 4.06). Any loan proceeds soallocated, which by June 30, 1988 are not committed to a specific publicirrigation scheme approved by the Bank, would be cancelled (para. 4.07).
Project Benefits and Justification
3.28 Production, Benefits and Farm Incomes. The impact of the project onproduction would result from increased productivity and an expansion of croppedareas. At full project development, the annual value of incremental production isestimated to be US$54 million; annual fiscal revenues from the value-added tax onagricultural products is estimated to be US$6.5 million. Incremental productionthat would be marketed through existing channels is not expect.J to lead tomarketing constraints as Pernambuco's present production does not meet demand.Improved marketing facilities, water supply systems and community activities wouldalso provide substantial benefits to the population, especially to women.Expanded agricultural activity would create jobs equivalent to some 34,000man-years annually. Improved farming practices and careful use of agrochemicalsdue to an expanded and trained extension staff would have a beneficial impact onthe environment. Estimated financial rates of return for illustrative farm modelsrange from 23% to 48%. Family incomes of project beneficiaries who all belong tothe poverty target group are estimated to range between US$1,140 and US$2,480 atfull development, representing an increase of 75% to 185% over present farm incomelevels, not taking into account any supplemental income from off-farm work.
3.29 Economic Analysis. The economic rate of return has been estimated as13%. Sensitivity tests show that when project benefits fall by 16% or projectcosts rise by over 19% the rate of return falls below the estimated 11%opportunity cost of capital. A lag of three years in achieving project benefits,such as might occur during a severe drought, would result in a 10% rate ofreturn. (Details of the Project Benefits and Economic Analysis are given inAnnex 3.)
Project Risks
3.30 Although projects under NRDP are simpler in design than previous ruraldevelopment projects, efficient delivery of project services andinter-institutional cooperation would still be important for project success. Ttueproject includes monitoring, evaluation and technical assistance to foster a moreefficient Institutional environment. Delays and shortfalls in counterpart fundinghave also posed problems in past projects; however, recent changes in fundingchannels, a new source of counterpart funds and the consolidation of ruralprograms should help secure adequate and timely counterpart funding. At farmlevel, the security of land tenure is still a problem; implementation of theNortheast Region Land Tenure Improvement Project (Loan 2593-BR) and of theGovernment's agrarian reform should help minimize this risk. Many farmers still
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face re:urring drought conditions. Decreasing these risks has influenced projectdesign by increasing the focus on water resource development and on small farmertechnology generation and diffusion.
IV. SUMMARY OF AGREEMENTS REACHED AND RECOMMENDATIONS
4.01 During negotiations, both the Federal and State Governments providedassurances that:
(a) at least 87,000 ha by March 31, 1988, and an additional 48,000 ha byMarch 31, 1990. would be available for redistribution to projectbeneficiaries in priority areas (para. 3.13);
(b) (i) project accounts would be maintained according to practicessatisfactory to the Bank; (ii) terms of reference for the auditors wouldinclude verification of the Statements of Expenditures and the SpecialAccount; and (iii) copies of the audit report would be submitted to theBank within six months of the close of each fiscal year (para. 3.17);
(c) all necessary operating agreements would be entered into no later thansix months after loan signature (para. 3.18); and
(d) procurement procedures would be as specified in para. 3.25.
4.02 T)uring negotiations, the Federal Government provided assurances that:
(a) (i) the regional operating plan would be sent each year to the Bank forcomment prior to approval; (ii) the portaria, the final regionaloperating plan and the Pernambuco State operating plan would be sent tothe Bank not later than April 1 of each year; and (iii) any proposedchanges in the planning and budgeting process would be submitted to theBank for comment prior to enactment (para. 3.16);
(b) the administrative regulation establishing funding procedures would notbe changed without Bank approval (para. 3.21); and
(c) for rural credit, the sufficiency of funds, the eligibility criteria,terms and conditions, reporting provisions, and credit priorities wouldbe applied as outlined in paras. 3.09 and 3.23.
4.03 During negotiations, the State Government provided assurances that:
(a) within six months of loan signature, it would define with SUDENE'sassistance and in a manner satisfactory to the Bank: (i) the internalstructures of the Irrigation Division in the State Secretariat ofAgriculture and of CISAGRO's Irrigation unit; (ii) staffing requirementsand staff profiles for those agencies; and (iii) their operationallinkages; and put the preceeding organizational improvements into effect(para. 3.06);
(b) (i) the community development fund would be established and maintainedunder terms and conditions satisfactory to the Bank; (ii) no funds wouldbe released to beneficiary groups prior to the signing of an agreement
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between the T. U. and the groups or municipalities (in the case ofunincorporated groups); and (iii) not later than December 31, 1988, theBank and the T. U. would review performance of the grants for theeconomic subprojects to establish the feasibility of further communityfund operations on a loan basis (para. 3.11);
(c) the T. U. would be reorganized, staffed and maintained under conditionssatisfactory to the Bank (para. 3.12);
(d) (i) quarterly monitoring reports would be sent to the Bank not laterthan three months after the end of the respective fiscal quarter; (ii)the T^ U.'s Monitoring and Evaluation Division would be fully staffed,under conditions satisfactory to the Bank; and (iii) terms of referenceand institutional arrangements for evaluations would be satisfactory tothe Bank (para. 3.19); and
(e) (i) cost recovery provisions for public irrigation schemes would beimplemented in accordance with Government legislation and (ii) drinkingwater supply charges covering full operation and maintenance costs wouldbegin to be charged to consumers in 1989 (para. 3.24).
4.04 It would be a condition of loan signature that the amendment to theongoing Agricultural Credit and Export Project (Loan 2348-BR), that establishesinterest rates for the subject project, be signed.
4.05 It would be a condition of loan effectiveness that the Bank be providedwith evidence that the planning, budgeting, staffing and administration of allcurrent rural special programs in Pernambuco be unified in the T. U. (para. 3.15).
4.06 It would be a condition of disbursement for loan proceeds financing theconstruction of public irrigation schemes that the Bank had: (i) approved thescope and content of the technical assistance program for state irrigationagencies; (ii) received proof of acquisition of the land required for irrigationschemes; and (iii) approved the detailed engineering designs, resettlement plans,and operation and maintenance standards for irrigation schemes (para. 3.27).
4.07 Any loan proceeds allocated for the construction of public irrigationschemes, which by June 30, 1988 are not committed to a specific public irrigationscheme approved by the Bank, would be cancelled (para. 3.27).
4.08 Subject to reaching the above agreements, the proposed project would besuitable for a Bank loan of US$92.0 million equivalent with a term of 15 years,including a 3-year grace period.
May 22, 1986
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ANNEX 1
BRAZIL
NORTHEAST RURAL DEVELOPMENT PROGRAM
NORTHEAST RURAL DEVELOPMENT V PROJECT (PERNAMBUCO)
PROJECT DESCRIPTION
A. Land Tenure and Agricultural Production
1. About 96% of Pernambuco's 330,000 farms are smaller than 100 ha, theyaccount for 42% of the area. However, 75% of the State's farms are smaller than10 ha and account for only 11% of the area. Most of these very small farms arelocated in the agreste, where they produce the bulk of the State's food (Table1.1).
2. Pernambuco's food production in a normal year does not match itsconsumption needs. Further-more, during a drought year such as 1982, the yields ofthe major annual crops (beans, maize and cotton) dropped between 35% and 60% whencompared to a normal year (Table 1.2).
B. Project Areas
3. The project areas, or priority areas, where the state rural developmentplan would take place include 118 of Pernambuco's 167 municipalities. Two-thirdsof the project area lies in the agreste, where the State has already begun a landtitling program. It is also the area with the heaviest concentration of smallfarmers (Tables 1.3 and 1.4).
C. Detailed Features of ProjectComponents
Water Resource Development
4. The public irrigation subcomponent would consist of two mediumrsizedirrigation schemes: Areial (400 ha), and Jatoba (150 ha), as well as 17 smallirrigation perimeters (1,620 ha); in all, 1,515 families would benefit. Inaddition, about 6,000 ha of private irrigation financed under the rural investmentcredit component is expected to benefit 3,000 families. The project would alsofinance the acqu4sition by the State of external technical services, during thefirst three years of project implementation, to provide the Irrigation Divisionwith general technical advice and the State Agricultural Development Company(CISAGRO) with specialized assistance in project implementation and irrigationperimeter management.
5. The execution of the public irrigation component would be carried out bythe Irrigation Division, to be created in the Water Resources Department (CERH)within the Secretariat of Agriculture, and by CISAGRO which would be strengthenedunder the project. CERH would be responsible for planning and coordinatingirrigation activities, including the drafting of feasibility studies, the finalengineering design (usually by consultants), basic studies for the State'sirrigation planning, preparation of projects to be implemented in subsequent NRDPphases and monitoring and evaluation of irrigation activities. CISAGRO would beresponsible for construction supervision, execution of settlement programs,
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management of the irrigation perimeters, collection of water tariffs and technicalassistance to farmers. The State Technical Assistance and Rural Extension Company(EMATER-PE) would be responsible for the implementation of the private irrigationprogram and for providing extension services to public irrigated perimeters whereagreements with CISAGRO were arranged. The State would strengthen both theIrrigation Division in the Secretariat of Agriculture and CISAGRO's IrrigationUnit and define with SUDENE's assistance and in a manner satisfactory to the Bankthe details of: (i) the Department's and Unit's structures; (ii) staffingrequirements and staff profiles for those agencies; and (iii) the internaloperational linkages between both irrigation agencies; and put the preceedingorganizational improvements into effect.
6. The planning and execution of the irrigation subcomponent would besubject to the following conditions: (i) Bank approval of the-scope and content ofthe technical assistance program for the state irrigation agencies; (ii) receiptby the Bank of the proof of acquisition of the land required for the irrigationschemes; and (iii) Bank approval of detailed engineering designs, resettlementplans, and operation and maintenance standards for such schemes. In the case ofsmall schemes (conventional schemes under 150 ha) Bank's approval might berequested by submitting groups of similar projects. In the case of schemes by lowpumping from the Sao Francisco river, design-level determination of theircompatibility with best estimates of river level raise consequent to futurehydroelectric development would be required. Cost recovery through water tariffswould be implemented in accordance with Federal Government legislation. All fundsfinanced from the Bank loan that are not committed to a specific public irrigationscheme approved by the Bank by June 30, 1988, would be cancelled.
7. The cost of collective infrastructure varies considerably: the Areialand Jatoba schemes are estimated at US$4,000/ha, the group of 17 small schemesthat are simpler and require less infrastructure are estimated at US$2,500/ha.On-farm works average about US$800/ha.
8. The water supply subcomponent would consist of the construction of 50simple water supply systems with bore-holed wells, 65 smaller systems usinghand-dug wells, 25 systems using surface water and the recuperation of 73 systemsthat have stopped functioning. This subcomponent is only expected to be financedfor the first two years of project implementation as this action would later befunded by the Bank-financed Northeast Rural Water Supply and Sanitation Programcurrently under preparation. Each simple water supply system would include a deepor shallow well or surface source of water, pumping equipment, a transmissionline, a storage tank, laundry facilities and one or more standpipes that wouldserve from 10 to 100 families. Water supply systems would be designed for anaverage flow of 30 liters per capita per day. The per capita investment cost ofnew systems is estimated to be between US$28 and US$67.
9. Administration of the water supply component would be carried out by theTechnical Unit within the Secretariat of Planning. Construction of the watersupply systems would be carried out by CISAGRO or by small contractors underCISAGRO's supervision. Selection criteria for communities would include villagesize, per capita investment costs, community willingness to gradually assumeresponsibility for operation and maintenance, and location. Preference would begiven to areas where various communities require new systems so as to allow foreconomies of scale in drilling costs. During a transition period, until theNortheast Rural Water Supply and Sanitation Program becomes effective, themunicipalities and the State would assist the communities in meeting operating
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expenses. CISAGRO would discuss the location of the wells and standpipes with therecipients before installation of the systems; it would also provide technicalbackstopping and preventive maintenance and training to the community.
10. The fisheries subcomponent would consist of stocking 14 state lakes(17,000 ha of water surface) with fingerlings and monitoring and rationalizing thefishing that takes place there. Fingerlings would be bought from three existingfish hatcheries within the state that have under-utilized production capacity.
II. Implementacion of the fisheries subcomponent would be undertaken by thethe Secretariat of Agriculture. Once the lakes are stocked, fishing bycommunities living on the lakes would be monitored and controlled to maintainproduction levels, as is already done in ten state lakes.
Agricultural Research anc. Basic Seed Production
12. The Federal Agricultural Research Company's (EMBRAPA) and the Institutefor Agricultural Research in Pernambuco (IPA), the state-run agricultural researchinstitute, have both developed and would continue to develop technicalrecommendations to improve productivity. Recently there have been considerableimprovements in coordination among state research units (under the guidance ofEMBRAPA), more focus on the small farmer, and a shift from commodity-basedresearch to farm systems research. The project would finance: (a) fouragroecological and natural resource studies to assist in future research planning;(b) 730 short-and medium term applied research trials at experiment stations toimprove production techndlogy; (c) 12 farm-level observation units to testimproved technology using farmer participation; (d) production of about 120improved dairy cattle for distribution to farmers; and (e) incremental equipment,salaries, training and other operating expenses related to these activities.
13. The implementing agency would be IPA, a well established and reputableinstitution. Technical supervision, training, coordination with research programsin other states, and review of annual plans would be the responsibility of theFederal Center of Agricultural Research for the Semi-Arid Tropics (CPATSA), whichis receiving support for those activities under Northeast Rural Development IProject (Loan 2353-BR). IPA would develop research in cooperation with bothfarmers and extension officers, and appraise results from the farm-levelobservation units. Cooperating farmers who have observation units on their farmswould contribute to the costs of investments (about 25% of total costs, mostlyusing credit and by providing labor). Once the observation units have beentechnically and economically proven, they would be replicated throughdemonstration units under the aegis of EMATER-PE.
14. IPA would also expand an existing program to produce basic seeds forfive major cropsz rice, beans, maize, grain sorghui and castor beans. The projectwould finance investment costs for sheds, vehicles, agricultural equipment, andrecurrent costs. The basic seed produced would be sold to cooperatives formultiplication. IPA would also expand its existing dairy cattle program toproduce about 15 animals of Improved breeding stock per year. They would bedistributed to small farmers through a credit-in-kind program under theorganization of EMATER-PE.
Agricultural Extension
15. EMATER-PE is already prc 'iing extension to farmers in part of the
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State. Under the proposed project the extension service would be expanded toreach about 73,000 farm families by full project development. The project wouldfinance: (a) establishment, construction (if necessary) and equipping of 5district offices; (b) establishment of about 470 demonstration plots; (c) paymentof recurrent costs for about 400 agricultural and social extension agents (twoagricultural agents for every social extension agent), 50 subject-matterspecialists and supervisory personnel, and about 190 administrative staff; (d)production of about 10 million seedlings for social reforestation; and (e)purchase of project-related vehicles, and training and operating costs.
16. EMATER-PE field staff are organized into six regional offices and 125district offices in the project area. Most supervisory personnel and subjectmatter specialists would be located in regional offices or in Recife and wouldtravel to supervise local extension agents. At district level, each extensionagent would assist, on a fixed schedule, six to ten groups of 20-30 farmersorganized around contact farmers and demonstration plots. The ratio ofagricultural extension agents to farm families in rainfed areas by the eighth yearof project implementation would be 1:300; in irrigated areas it would be 1:100.Social extension workers would work with farm families to improve sanitation,child care, family nutrition, small animal husbandry and vegetable gardens. About42 additional extensionists would work exclusively on the Support to SmallCommunities component. Specialists from the Federal Company for TechnicalAssistance and Rural Extension (EMATER) would supervise EMATER-PE at least once amonth. In service training for extension staff would be undertaken at EMATER-PE'straining center and at IPA.
17. Extension activities would encourage adoption of simple, low-costpractices which would improve crop yields, expand the cultivated area and increaselivestock production. Many practices to reach these objectives are alreadyproven, such as: (a) increased use of animal traction to improve land preparationand labor productivity; (b) use of improved seeds; (c) contour plowing to improvewater and soil conservation; (d) improved weed control; (e) use ofdrought-resistant and perennial crops; (f) improved animal husbandry; and (g)improved pastures and cultivated forage crops.
18. Agricultural extension agents would also be responsible for theimplementation of the social forestry activities aimed at producing some 10million seedlings for farmers to plant for fuelwood, timber, fruit and foddertrees. Small nurseries would be installed at village level and EMATER-PEtechnical staff would be specifically trained in seedling production, distributionand wood lot management.
Rural Investment Credit
19. See paras. 3.09 and 3.23.
Marketing Services
20. The marketing services component is designed to increase farmers'knowledge of product grading, markets and prices, improve the timely provision andmarketing of agricultural inputs, and establish a pilot food wholesaling servicein rural areas. Ongoing Government schemes, such as the Minimum Price Scheme andthe Advance Purchase Scheme of farmers' surpluses, would continue, but not withBank support.
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21. The marketing information service (SIMA) is an ongoing activity carriedout by the Ministry of Agriculture. It provides farmers with timely advice onlocal and regional prices, storage facilities, transport, and selling options.The project would establish seven regional offices at Caruaru, Garanhuns, Bonito,Afogados da Ingazeira, Belem do Sao Francisco, Petrolina, and Vitoria de SantoAntao, as well as financial support to the existing central office in Recife.Each office would have two marketing technicians and a clerk. Data would becollected at markets and disseminated by radio and printed bulletins. The projectwould finance staff salaries, vehicles and office equipment.
22. Farm product grading would be carried out by Pernambuco's WarehouseCompany (CAGEP) with a mobile classification and grading unit* The unit wouldvisit, assist farmers in classifying and grading fruit, vegetables and grain. Theproject would finance vehicles and equipment.
23. The fruit and vegetable wholesale market in Victoria de Santo Antao, 40km from Recife is inadequate for the volume of trading that takes place there.The market complex to be constructed would include some 2,500 m2 of constructionin Victoria and some 900 m2 in Recife itself. Construction of the new marketswould be carried out by CAGEP; management and maintenance of both complexes wouldbe done by the Central Marketing Organization of Pernambuco (CEASA).
24. The expansion of the food wholesale service would be carried out by theState branch of the Federal Food Company (COBAL), which has been operating mainlyin urban areas. Under the project, COBAL would expand its operations in the ruralareaa, enabling some 200 retailers to affiliate with COBAL's Rede Somar scheme,whereby goods are purchased by small retailers frc}m COBAL at lower prices thantnose purchased through the private wholesale system. Retail prices for thesegoods are then controlled by COBAL and the savings (about 10-15%) are passed onto consumers. The project would finance: (a) the expansion and renovation ofthree service centers (in Caruaru, Arco Verde and Salgueiro) to allow for moreregional purchasing of basic food crops, and (b) vehicles, equipment and initialstock.
25. The construction, maintenance and management of three warehouses (each3,000 m2) in Cedro, Exu and Ouricuri would be the responsibility of CAGEP, whichis currently responsible for several warehouses in Pernambuco.
26. Training of extension agents in marketing techniques would be carriedout by EMATER-PE. After training it is anticipated that the extension agentswould pass on their knowledge to farmers. The courses for extension agents wouldinclude product marketing systems, marketing margins, advantages of cropclassification, market preferences, processing, handling, and crop storage.
Support to Small Rural Communities
27. The objectives of the Support to Small Aural Communities (SSRC)component are to help formal and informal groups of farmers participate in theirown development by- (a) providing tthm with a system whereby they select, plan,implement, manage, and monitor their own interests through group representation;and (b) enabling them to improve their economic base through organizing jointresources for higher production. In order to carry out these objectives, thecomponent would include: (a) creation of a community grant fund of US$21.4 millionto finance local development projects; (b) purchase of vehicles and equipment; and(e) training and recurrent costs of about 42 community development agents. Mostof the 73,000 project beneficiaries would benefit directly or indirectly as aresult of the local development projects (LDP).
- 22 -
28. The community development (CD) fund would finance three categories ofLDPs: (a) those expected to raise incomes (representing in total at least 60% ofthe fund) such as cottage industries, building of fish ponds, and small animalproduction schemes; (b) those expected to improve the communities' infrastructure(representing at least 25% of the fund) such as construction of communal laundryfacilities, small irrigation and drainage schemes, and repair of small accessroads; and (c) those that improve the communities organization (representing notmore than 15% of the fund) such as training group leaders and giving legalassistance for land tenure matters. Guidelines have been established to helpselect LDPs:
(a) LDPs would be submitted in writing to Municipal Councils and wouldinclude objectives, justification, expected benefits, method ofimplementation, cost sharing (groups would participate with about 15% ofcost), and monitoring and evaluation;
(b) the fund would not finance schemes funded by other project componentsnor the construction of schools, health posts, roads, or ruralelectrification;
(c) the fund would not finance recurrent costs of LDPs; and
(d) the group would be solely responsible for the management andadministration of the LDPs that should attempt to benefit the communityand eventually become self sustaining.
29. EMATER-PE would be responsible for the implementation of the SSRC. Itwould recruit, mainly from within its own existing staff, 42 full-time CD agentswho would be university graduates. These agents, each one covering threemunicipalities, would stimulate community organizations and assist in theformulation of group requests for LCPs. Group requests would then be submitted toMunicipal Councils for discussion, analysis, evaluation, and approval. MunicipalCouncil members would be elected by village, and each village would send tworepresentatives to the Council. The relevant CD agent and regional coordinatorswould also participate in the analysis and evaluation of group requests. TheT. U. could reverse the Municipal Council's recommendation if it did not conformwith the stated guidelines, or postpone funding if funds had been exhausted forthe current fiscal year
30. Disbursements would be made in installments and progress inimplementation would be supervised by the CD agent. In the case of a legallyregistered association or group, disbursements would be made directly to the groupthrough a bank account. In the case of an unregistered group, the agreement wouldbe signed by the municipality on behalf of the group and funds would be channelledthrough the municipality. At present all funds would be disbursed on a grantbasis but by the end of 1988 the T. U. and the Bank would review the experience todate on the economically based LDPs to study the possibility of carrying outfurther CD fund operations on a loan basis.
31. Monitoring and evaluation of the LDPs would be extremely important toboth the groups themselves and the development of the SSRC component itself.During the preparation of a group request the CD agent and the group woulddetermine the procedures required for monitoring and evaluation. As aparticipatory effort monitoring and evaluation would: (a) increase the awareness
- 23 -
and commitment within the community; (b) allow findings to be fed back immediatelyto the group; and (c) as an ongoing process, give the CD agent a closerunderstanding of the project and of the community's evolution.
Project Administration and Training
32. See Annex 2.
D. Project Cost
33. See para.3.20 and Annex 1, Tables 1.5 and 1.6.
E. Project Financing
34. See para. 3.21.
F. Procurement
35. See para. 3.25.
G. Disbursements
36. See paras. 3.26 and 3.27 and Annex 1, Tables 1.7 and 1.8
H. Accounts and Auditing
37. See para. 3.17.
I. Progress Reporting and Monitoring and Evaluation
38. See para. 3.19 and Annex 2.
BRAZIL
NORTHEAST RURAL DEVELOPMENT PROGRAM
NORTHEAST RURAL DEVELOPMENT V PROJECT (PERNAMBUCO)
State Structure of Land Holdings
FARM SIZE AREA FARMS('000 ha) ('000)
SERTAO AGRESTE MATA TOTAL SERTAO AGRESTE MATA TOTAL
Less than 10 ha 246.5 409.5 56.0 712.0 64.9 157.5 24.3 246.7
10-50 710.4 471.6 96.9 1,278.9 32.0 22.9 5.5 60.4
50-100 501.1 228.4 35.6 765.1 7.2 3.4 0.5 11.1
100+ 2,203.6 921.3 757.1 3,882.0 6.9 3.3 1.7 11.9
TOTAL 3,661.6 2,030.8 945.6 6.638.0 111.0 187.1 32.0 330.1
SOURCE: IBGE Census 1980.
-25 - ANNEX ITable 1.2
RAZIL
NMD,AST RURAL DEVEwr PROGRAM
NISMIHEASr RURAL DEVEWPMNf V P1F)JECt (PNANBUa)
Evolution of State AWcriultural Prxxidction(Mbjor Crops 1973 and 1982)
1973 1982CROa a/ Yield Pruction Area a/ Yield Production
1/ Including initial deposit of US$4.0 million into the Special Account.
- 32 - ANNEX ITable 1.8
BRAZIL
NORTHEAST RURAL DEVELOPMENT PROGRAM
NORTHEAST RURAL DEVELOPMENT V PROJECT (PERNAMBUCO)
Allocation of Loan Proceeds
Category Item AmountUSS Million
I Water Resources Development. 12.970% of expenditures
It Agricultural Research. 50% of expenditures 2.3up to an aggregate disbursement under thiscategory of US$1.3 million; 30% thereafteruntil the aggregate reaches US$2.1 million;and 10% thereafter
III Rural Extension.50% of expenditures up to an aggregatedisbursement under this category ofUS$6.8 million; 30% thereafteruntil the aggregate reachesUS$9.3 million; and 10% thereafter. 10.3
IV Credit. 31.270% of expenditures
V Marketing. 2.650% of expenditures.
VI Support to Small Communities. 17.770% of expenditures
VII Administration and Training.(i) Administration. 50% of expenditures 4.4up to an aggregate disbursement of US$2.5million; 30% thereafter until the aggregatereaches US$4.0 million; and 10% thereafter(ii) Training. 50% of expenditures up to an 1.4aggregate disbursement of US$1.0 million;30% thereafter until the aggregate reachesUS$1.3 million; and 10% thereafter
VIII Unallocated 9.2
92.0
- 33 -
ANNEX 2
BRAZIL
NORTHEAST RURAL DEVELOPMENT PROGRAM
NORTHEAST RURAL DEVELOPMENT V PROJECT (PERNAMBUCO)
PROJECT ORGANIZATION AND MANAGEMENT
A. Institutional Aspects
Federal and Regional Levels
1. An Internministerial Commission (IC) for the Northeast Rural DevelopmentProgram (NRDP), chaired by the Secretary-General of the Ministry of Interior andcomprised of representatives from the Ministries of Finance, Planning, LandReform, and Agriculture and the Superintendent of SUDENE, has overall policy andplanning responsibility for the NRDP (Chart 1). The Director for the Program ofSupport to Small Farmers within SUDENE would be the regional coordinator of theNRDP, in which the proposed project participates. The Directorate receives policybacking for its work through the Regional Rural Development Council (RDC), linkedto SUDENE's Deliberative Cc,.ncil which includes all of the Northeast StateGovernors. The RDC would consist of the Superintendent of SUDENE, seniormanagement of the Directorate, representatives of the involved federal ministriesand banks, and the Northeast State Secretaries responsible for programcoordination.
State and Local Levels
2. A State Rural Development Council (SRDC), chaired by the Governor withthe Secretary of Planning as Executive Secretary and with up to five other StateSecretaries as members, would provide overall guidance for rural developmentactivities.
3. The Technical Unit (T. U.), a unit with its own budget, salary structureand administrative personnel procedures, located within the Secretariat ofPlanning, would be the agency responsible for administering and coordinating allfederally-funded rural programs and for fully integrating (including training)them under the project (Table 2.1). Under the project it would be responsiblefor: (a) consolidating annual operating plans drafted by executing agencies; (b)supervising project performance and advising the SRDC on institutional ortechnical difficulties; (c) monitoring progress and preparing reimbursementrequests; (d) evaluating ongoing projects; and (e) administering trainingactivities and the community development fund.
4. The T. U. would reorganize its administrative structure to adjust tothe needs of the NRDP. Its headquarters in Recife would have up to about 60technicians organized into an executive superintendency, three advisors, atechnical general manager, three division managers (Planning, Field Operations,and Administration and Financing) and seven unit managers (information,programming, evaluation, training, agricultural development, finance andadministration). The field offices would gradually expand in number from three
- 34 -
in the first year to six in the third. Field offices would typically have threeproject officers, namely: a field manager and one officer covering economicactivities (such as extension) and another for social activities.
B. Training
5. Training programs would be emphasized and would be centrally coordinatedand administered by the Training Division to avoid duplication and conflictingstrategies among state agencies. The five types of training given would be:
(a) Induction Training. The objective would be to give an initialorientation for staff, farmers and community leaders as to the basicproject concepts, components, expectations, and the underlying strategyof "participation- in the implementation of project activities. Itwould be given by the T. U.
(b) ProJect Component Training. The objective would be to provide technicaltraining by component for staff. Responsibility for assessing the needsand undertaking the execution of the training program would remain withthe implementing agencies, but the T. U.'s Training Division would haveto give its clearance before releasing project funds.
(c) Management Training. The objective would be to improve both the T. U'sown managerial skills (both at central and regional level) as well asthose of the implementing agencies. Though organized by the T. U., thecourses themselves would be given by consultants.
(d) Training of Trainers. The T. U. in cooperation with SUDENE would traintrainers, usually with the assistance of consultants.
(e) Farmer Training. Farmers would receive training on specific components,such as credit, marketing, and community development. In each case therespective implementing state agency would be responsible for thetraining.
C. Monitoring and Evaluation
6. Monitoring and evaluation arrangements have been designed to simplifyreporting requirements and to provide accurate and timely information for projectmanagement and annual planning. The T. U. would receive from executing agenciesmonthly reports on key physical and financial indicators (Chart 2). In addition,the T. U.'s monitoring and evaluation division would be strengthened to coordinatemonito-- ng and evaluation and assist regional offices to carry out ongoingevaluation of project activities including agricultural production. Stateevaluation activities under the proposed project would comprise: (a) a baselinesurvey; (b) ongoing evaluation and special studies of selected topics; (c)mid-term evaluation; and (d) post-project evaluation.
- 35 - ANNEX 2Table 2.1
BRAZIL
NORTHEAST RURAL DEVELOPMENT PROCRAM
NORTHEAST RURAL DEVELOPMENT V PROJECT (PERNAMBUCO)
List of Executing and Collaborating Agencies
MainExecuting
Project Activity Agency Main Collaborating Agencies
Water Resource Development- State public irrigation CISAGRO Consultants- Fisheries subcomponent SAPE SUDENE- Feasibility studies SAPE Consultants- Rural community water supply CISAGRO Private Contractors
State Agricultural Research- Studies, trials, observation units IPA EMBRAPA-CPATSA- Basic seed production IPA EMATER-PE
Rural Extension- Agricultural Extension EMATER-PE EMBRATER-EMBRAPA- Social Forestry EMATER-PE T. U.
Rural Investment Credit BB, BNB, BP EMATER-PE
Marketing Services- Service centers COBAL CEASA- Marketing information SIMA CEASA- Retail shops COBAL Farmers Cooperatives- Training courses EMATER-PE
Support to Small Rural Communities- Community activities Community T. U.-EMATER-PE
groups
- Training and technical assistance T. U. EMATER-PE
State Project Administration- M & E T. U. SUDENE- Training T. U. and
NORTHEAST RURAL DEVELOPMENT V PROJECT (PERNAMBUCO)
FINANCIAL AND ECONOMIC BENEFITS
A. Financial Benefits
1. The estimated increase in crop and livestock production (Table 3.1) dueto the project's implementation was derived from illustrative farm models. Thefarm models (Table 3.2) take into account the present low level of production andlikelihood of only simple investments being made by farmers. The internalfinancial rate of return ranges from 23% to 48%; however, the incomes to bederived are not exaggeratedly high. The projected increases in crop yields areshown in Table 3.3. Agricultural production would be increased through acombination of increased productivity and expansion of the cropped area.Increased productivity would result mainly from increasing the cropping intensityon irrigated lands, more widespread use of improved seeds and better cultivationpractices. The expansion of the cropped area would be possible due to theincreased use of irrigated land and animal traction. Cropping patterns are notexpected to change dramatically. In the rainfed areas more drought-resistantcrops such as short-cycle maize and grain sorghum would be introduced. In areasbenefiting from irrigation, farmers are expected to increase the proportion ofmore profitable cash crops such as vegetables. Expansion of both cattle and goatherds would occur mainly from improved animal husbandry and better feedingresulting from increased use of artificial pastures (such as buffel grass), cactusand legume fodder trees (algaroba). At full development (Year 12) the annualincremental production generated by the project is estimated to be US$54 million(in November 1985 farm-gate prices), with three-fourths of the incremental valueof production resulting from crops and one-fourth from animal products.Incremental production is not expected to lead to marketing constraints asPernambuco's present production does not meet demand. Production would bemarketed through existing channels and the project would attempt to increase smallfarmers' competitive position by improving market information and providingtraining in post-harvest techniques.
2. The increased production would raise incomes considerably. Moreimportantly, it would give greater food security by reducing the impact of theeffects of droughts. Because current sources of supplemental income, such asoff-farm work, have not been taken into account, the difference between presentincomes and project incomes may be overstated by the models. The latter suggestthat net annual family farm benefits, which currently range from US$115 to US$280per capita would increase from 75% to 185% at full development. The expansion ofagricultural activities alone would create new on-farm opportunities equivalent toabout 34,000 man-years annually. Most of this demand would be for unskilled laborthat would be met with family labor. However, many small rural communitysubprojects would also generate demand for local employment, possibly of asemi-skilled nature.
- 39 -
B. Economic Analysis and Sensitivity
3. The overall rate of return of the project is estimated to be about 13%with a 20-year analysis (Table 3.4). The cost stream for the economic analysis isbased on four elements: (a) all Pernambuco project costs, except those related tostudies, water supply systems, forestry, fishing, wholesale marketing facilitiesand stocks and community development component or 69% of total state projectcosts; (b) 10% of regional administration costs financed under the Northeast RuralDevelopment I Project; (c) 13% of regional research costs financed under theNortheast Rural Development Project I and III Projects (this percentage is equalto the proportion of Pernambuco's rural population within the Northeast's ruralpopulation); and (d) recurrent state costs on a declining basis from Years 9 to 12and constant Year 12 costs during Years 13 to 20 to sustain the project followingthe investment period.
4. The evaluation of incremental net benefits 'ncluded two elements: (a)benefits from farmers expected to use investment credit (4,085 irrigated farms and20,000 rainfed farms) equivalent to 33% of the 73,000 farmers in the project area;and (b) an estimate for the incremental benefits accruing to the remaining farmerswho would be reached by the extension service and who would adopt improved farmingpractices without using formal credit (25% of the remaining 48,915 farmers). Nobenefits were included from the fisheries or social forestry components becausethey are too small to have any substantial weight when compared to on-farmbenefits.
5. Economic prices at the farr-gate were derived for the main traded goodsincluding maize, rice, cotton and chemical fertilizers, taking into accountinternational trading prices, freight, insurance, processing and handling costswith price trends projected according to those estimated by the Bank's EconomicAnalysis and Projection Department at 1985 constant prices (Table 3.5). Beans,sorghum, cassava, cow peas, and goat meat were valued at financial farm-gateprices. All other outputs and inputs (including labor) were adjusted by thestandard conversion factor (0.83) to account for domestie price distortions.
6. Project benefits would need to fall by 16% or project costs rise by 19%before the rate of return would fall below the estimated 11% opportunity cost ofcapital. Also, a lag of three years in achieving project results, such as mightoccur during a severe drought, would result in a 10% rate of return (Table 3.6).
-40 ANN- 3VAM-.1
RAZIL
R 3L L T PJM EUS
loEEFASf UPOL RDE irN V PErJEcT (PEXD)
Total nmal Area id Prohetlm of Major 2oi!s and LivestodcWitbout Project aid at i1u Developqnt
Withxe Project At Fub ll e1oat InCetadCrops and Livestock Area Prodmction Area Productiao Area Pr<xlctim value
Oarteritica of IlTtrative Farm Mleis Used in F dAl ar Enmic Analsis
Years toEatliuted Not FAstly Farm B¢fits 12w- Axl Retumn Fr day labor
Yodel No. Distribution SiP Fam _ani Climate WD Project I j Pect c Lr Delopint 1 Proiect W1 Proect (oeer 20 years)of FaOrs (to) Type Livestock ocati e 2
~~~_ e _ _ sX *s * _ _ S-_ II# s "s_ lTotL lMT AL EI EW llS -116 8-t138154-40891 -130362 -15606 -30S66 3254 9O3 14318 173937 t1800 t17 672 182156 136929 18073 231X 2493 27377 204080
bvil 3. 1986 16113
- 44 - ANNEX 3Table 3.5
BRAZIL
NORTHEAST RURAL DEVELOPMENT PROGRAM
NORTHEAST RURAL DEVELOPMENT PROJECT V (PERNAMBUCO)
Principal Prices Used for Financial and Economic Analysis(Cruzeiros in Constant November 1985 Prices)
Selected Products Unit Financial Economic
1986 1985
Cow Peas per kg. 4,000 4,000 4,000Beans per kg. 2,100 2,100 2,100Maize per kg. 900 1,530 1,717Rice per kg. 1,145 1,545 2,172Sorghum per kg. 700 700 700Cotton per kg. 3,200 2,380 4,275Cassava per kg. 315 315 315Castor Beans per kg. 2,200 1,826 1,826Goat Meat per kg. 9,500 9,500 9,500
Selected Inputs
Urea per kg. 1,959 2,105 2,878Triple Superphosphate per kg. 3,140 2,096 2,256Potassium Chloride per kg. 2,330 1,616 1,794
Source: Bank Mission
BRAZIL
NORTHEAST lJRA. DEVSLOPNENT PROGRJI
NORTHEAST RURAL DEVEWPMENT V PROJECT (PERNAMBUCO)
iroj.ce8Senstivity Aaialyal.
INTERI. RATES OF RFTM IF PET STAS222225:3z# .32252 #ag Z3I5:SS 3S ZZZZ:22S
STOT UW OX i P202 UP0O MZ10 Wof20? DU 502 I-AG 2I YARL A 2 YEARSLMIYEARS
APPRAISAL SVITICNN6 PERCEIMTAESTREAN VALUE VUALE CoAnE
MTOT 517P202.83 432#883.85 -16.301
CTOT 432t.883,85 St7202.83 19.48?
Net Present Vilue at oCC 11t2 84a 319 0 |Itternal Rate of Relurn z 1'.92Coupwe Esuavalent RaLe of Retumn 13.72
April 4, 1986
- 46 - ANNEX 4
BRAZILNORTNEAST RURAL DEVELOPMENT PROGRAM
NORTHEAST RURAL DEVELOPMENT V PROJECT (PERNAMBUCO)Documents Available in the Project File
1. Selected Bank Reports and Studies on Northeast Brazil:
- World Bank Report 3938-BR, "Rural Development Programs forBrazil's Northeast: An Interim Assessment," February 7, 1985.
- World Bank Report 5350-BR, "Northeast Rural Development I Project(Sergipe)," March 12, 1985.
- World Bank Report 5349-BR, "Northeast Rural Development II Project (RioGrande do Norte),' April 8, 1985.
- World Bank Report 5360-BR, "Northeast Region Land TenureImprovement Project," May 31, 1985.
- World Bank Report (Green Cover) 5709-BR, 'Northeast RuralDevelopment III Project (Bahia)," July 16, 1985.
2. SUDENE:- Project Analysis Report on Pernanbuco State Rural Development
Plan, "Programa do Apoio ao Pequeno Produtor Rural," August 1985.
3. State Government of Pernambuco:- Volume I - Program Summary- Volume II - Characteristics of the State of Pernanbuco- Volume III - The Rural Sector- Volume IV - The Small Rural Farmer
Appendix I - Statistics- Volume V - The Project Concept- Volume VI - Land
Appendix I - Working Notes- Volume VII - Water Resources
Appendix I - Working Notes- Volume VIII - Extension
Appendix I - Working Notes- Volume IX - Research
Volume X - Marketing- Volume XI - Rural Credit- Volume XII - Support to Small Rural Communities
Appendix I - Working Notes- Volume XIII - Farm Model
Appendix I - SertaoAppendix II - AgrosteAppendix III - Se.ras Unidas
- Volume XIV - Total Project Cost
4. COBAL: "Centrais de Servicios" - Recife, Caruaru, Arco Verde
5. EMATER-PE: "Reforestamento Social" - Recife
6. IBRD, SUDENE and State Government of Pernambuco: "Minutes ofUnderstanding," November 1985.
7. IBRD Supplementary Staff Working Papers:1. Water Supply2. Irrigation3. Support to Small Rural Communities4. Marketing
48 44 40
I ~~~~~~~~~~~~~~~~~~BRAZILjNATIONAL LAND ADMINISTRATION PROGRAM
( ! NORTHEAST REGION LAND TENUREIMPROVEMENT PROJECT B R A Z 1 L NORA
( .. ~~~~~~~~~~~~~~~~~~~~. ~~~~~~~REGIONPARA YEARLY LAND ADJUDICATION OPERATIONS
( ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~6$AJOAC)°,Lr,.,no O > ,,tuPARAIBA ,0 1 PSSOA
PlAUI
IS _v m i ? o>tIqwstv °s"-eFfU)h¢.df h cOu< 2 J3 e-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~? ~/~~~
J05.o d., P.- -PERNAMBUCO P
! , / ,ffl,i,s 8 ~~~~~~~~~~~~~~~~~~~~~r tO2 '-oF
0 J < \( 5O,s;' / w r. iOtOniua ~~~~~~~~~~~~~~~~~~~~dcP1PP5V /t 11.4*o PKC les. Q;[email protected]<obie0t
l t . g t °5(enfr S-^ \ ~~~~~\ '~ ALAGOAS
! N , R w"ru do Ptndo ' , ~~~~~~~~~~~~SERGIPE/ o Jor. t.,^¢l ^ ° >~~~~~~~~~~~~~~~~~~~~~~~~)ARACA;.U
}a~ \ lPadtraon, ~ r! i .~ Cano 0t 1''. t ' .*, Jg& S Joe ,acooaGan1
, 0 yA L Gose 0J A. Jo
5- .r -i,a _-]5, .. - c4ca .
rt V e, e-dA*steK WAO 42.lra>gat -~~~~~~~~~~~~~~~~~~~~~~~~~Pv,st
, v <2ala.,b<R>toritaina g pru ) > s;oltR° °^trS3~~~~~~RECIFE
* ) ________= A w G raaa
PC eRIOa P, p- verr8ralo ardsn /SaoJaotquun do Guabr; aZ . ; c
coe QPdr S1aoha Cachorw.am Agres,ri Bonito (
-7>Stt x t t- t r~~~~~~~~~~S& SdBento do ALt} / 8*a /~~~~~~~~~~~~~~~~~~& Be up,5 detuoa\ mk<g G r er G Bna -- SL I OhaLr-
, 1 JDanatn~~"ga / u Jp G!s,fPla* QAu rt
*as<~~ _Q(/\t a /~ ParanatarIn -Jooth bS JosE da Coroa Grande
A < g,as 8slas ; iO^e
~~~\< . e M~~~~~~~~~~~~~~~kACEIO
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~,, 6 1A
S E G iP E --eceg A ; t <~~~~~~~~~~~~~~~~~~~~~~~~~~~Bas.i !
R | t * ffi -Fos . iWa~~~~~~~~~~~~~~ARCIi 1986
41' 40 39 3a
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I ) ~~~~~~~~~~~~~~~~~~~~~~~~~~~~FP !A U i /\
to Pcs * - -; t.zer o-7r fi
4 oOsAripina \Sitio da aorer_
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Tr Granit~~~~~~~~~~~~~~~( ruf
S Joa t&o Belmonte , Flo,Verd nte 'O~~~~~~~Calulobi
Serra Tafhad_a__,__-
ltgve4 Mm~tandib4 Pe oI n i 7
5 to Fe-ra Cie na
Petrotina
* .4 At ~~~~~~B R A Z I Lto Juazei' NORTHEAST RURAL DEVELOPMENT PROGRAM
Northeast Rural Development V Project (Pernambuco)Agricultural Potential Defined by Dependable Rainfall k
lsohyets in mmRivers
,Hargreaves '9:4 ' State Capital 97C'ass 1 ia o' Des'r,pi'o- o Towns iMunicipat Capitalsi 5,lery ar, c ,! su tci! 1 d le.1 -- le,, -_ Selected Roads
mal: be-i pr Pepare r, Muncipal Boundaries1wo,o 1ank s staf e-~ J. A L .iaX - -a -- i aq'O.. 'eehe co,,nwence of toe - - State Boundarieslers a. 8s erls C t f' tV i" Se'a -aro Prosa-loe ooss oe o' o-oos 'eo, 2nat ese ot The Word Ba-c 3 tc 4 r-DrthS g'c. rg Seaso-Me kitenaftona;f.Faoce PLocCt.O' COSS i 'c :V^ --- Inte'nat,onal Bojndaries
3oraton The de-zr'a'ors WelD', e r,,5 a gmo2 o"e. o r"is-'r
I and the boui da'es StO*' aoeq,ac, t.'- ^ 5 - 'x'-e -"ths
iS meap do not r.4 o- tMe
of The Worid Bana ana tOe
naionai Friee Corps'a'?o'
iadmgnet on the lega ta! a50 100 200cy te..fory Or any I)-seie.n! or acceopta^ce a' Ki,ometersI bo,,danes
